Schroder European Opportunities Fund - positioned for a recovery
Kate Marshall | Thu 27 August 2015
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Steve Cordell, manager of the Schroder European Opportunities Fund, employs a business cycle investment approach. This means stock selection is driven by an understanding that specific companies perform differently at a given stage of the business cycle.
Business Cycle approach
In managing the portfolio, Steve Cordell assesses in which of the four phases of the business cycle Europe is - recovery, expansion, slowdown or recession - and what he believes that means for the earnings prospects of individual companies. In his view, a key advantage of this approach is that the fund remains flexible and avoids permanent bias towards a particular style of investing.
Source: Schroders, correct at 31/07/2015
According to the manager, the oil price drop has helped short-circuit the business cycle. While he believed Europe had previously reached the expansionary phase of the cycle, he feels the economy is now back in the recovery phase.
How is the portfolio constructed?
Steve Cordell divides his investment universe into seven style groupings, in the belief each of these areas of the market will perform differently according to which stage of the business cycle we are in. The weighting to each of these different groupings alters as we move through the business cycle.
For example, in an expansionary phase the weighting in more economically-sensitive, or cyclical, areas of the market increases, such as financial businesses. Conversely, when the economy is in recession the portfolio tends to have a higher weighting towards the defensive groupings, including pharmaceuticals.
The left-hand side of the table below highlights how the portfolio is typically positioned during the recovery stage of the cycle, while the right-hand side indicates the fund's current allocation to each group compared with its benchmark index. The fund is currently biased to more economically-sensitive areas of the market.
Source: Schroders, correct at 31/07/2015
What has driven performance?
Steve Cordell's stance has worked in the fund's favour so far this year, with the fund outperforming both the FTSE World Europe ex UK index and the sector average. Although please remember this should be seen as no indication of how the fund will perform in the future. Exposure to financials has been the main contributor to performance over the period, with positions in the banking sector, such as Intesa Sanpaolo and KBC Group, proving particularly beneficial.
Elsewhere, exposure to the oil & gas sector has detracted from performance. Against a backdrop of falling oil prices, holdings including Petroleum Geo-Services and Royal Dutch Shell have struggled. That said, the manager believes long-term value can now be found in oil-related companies, so he has selectively been topping up exposure.
Our view on this fund
Steve Cordell took over management of this fund in June 2013, since which point the fund has grown by 28.1%, outperforming the 21.5% and 21.2% delivered by the sector and the benchmark, respectively. He has also demonstrated an ability to outperform over the longer term. He runs another European fund, but with larger exposure to the UK, using a similar investment process. This fund has performed well over his tenure since January 2003.
We view Steve Cordell as a sensible and experienced fund manager and we would expect his funds to perform well over the long term, although there are no guarantees. That said we currently have greater conviction in other managers in the European sector, some of which adopt a similar investment approach. As such, the fund does not currently feature on the Wealth 150 list of our favourite funds across the major sectors.
Find out more about this fund including how to invest
Please read the key features/key investor information document in addition to the information above.